Sensitivity of Job Destruction to Vintage and Tenure Effects

Juha Kilponen and Juuso Vanhala

Scandinavian Journal of Economics, 2014, vol. 116, issue 4, 1068-1090

Abstract: Matching models with endogenous job destruction typically deliver excessively volatile job destruction and moderate volatility of vacancies. In our model, vintage and tenure effects promote the creation of new matches that are temporarily more productive, while reducing the survival of temporarily less productive matches. This cleansing effect produces a counter-cyclical inflow into unemployment, removes the strong response of job destruction to productivity shocks, and generates a downward-sloping Beveridge curve, as in the data. The model also generates more volatility in vacancies, the job-finding rate, and labor-market tightness.

Date: 2014
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